The case of Johnson v Old has been going through the courts for many months, but this recent judgment now clarifies the rules for landlords and their agents.
In the case, tenant Mrs Old had made successive payments of six month’s rent up front, as well as paying a deposit and administration fees when she first signed an agreement with the landlord.
But when she fell behind with rent payments after the agreement had become a statutory periodic tenancy, the landlord sought possession of her home using a section 21 notice.
In the first case in January 2012, the district judge found that the upfront rent payments should be classed deposits, and because the landlord had not placed the money in a protection scheme the section 21 notice could not be valid.
But in July the landlord’s appeal came to another county court judge who overturned the decision and found that the payment was rent not a deposit.
The recent case in the Court of Appeal came about after Mrs Old secured legal aid.
But the decision was made in the favour of the landlord after the judge looked at the appeal in three parts.
He considered whether the tenancy agreement required six months’ rent to be paid in advance, and found that it did.
The judge also rejected the argument that this payment was a security or deposit. In fact, it was actually in the tenant’s favour for the lump sum paid in advance to be considered as rent, he added.
The third part of the appeal, that the landlord did not comply with regulations and place the money in a protection scheme, was irrelevant as the money was not a deposit.
These findings give landlords clear guidance on dealing with rent paid upfront and shows that such money does not have to be protected as a deposit.
For those who rent to potentially problematic tenants, such as those with no references or a poor credit history, it confirms that advance payments should be treated as rent.
